Question: The quantity supplied and the price of product P are given as follows:
|Price (Rs. Per Kg.)||Quantity Supplied (Kgs. in thousands)|
Draw a supply curve for the supply schedule of product P and find the type of the elasticity of supply using the curve
The supply curve for product P is shown in Figure
In Figure, SS is the supply curve. When the price of product P is Rs. 50, the quantity supplied is 35,000 kgs. However, when the price increases to Rs. 53, supply reaches to 40,000 kgs. Similarly, when the price further increases to Rs. 55, the supply increases to 45,000 kgs. This shows that the change in price is only Rs. 2 while the change in supply is 5,000 kgs. In other words, the proportionate change in quantity supplied is more than the proportionate change in the price of product P. Therefore, the supply of product P is highly elastic (es>1).